Two weeks ago, the United States Supreme Court explicitly reversed itself and struck down decades of precedent limiting sales tax revenue for states to collections solely from vendors with a physical presence in that state. The Court’s decision in
South Dakota v. Wayfair, Inc., et al.,
dramatically opened the door to allow states the ability to require out-of-state vendors to collect sales tax from in-state purchases and hand it over.
Previously, as most consumers buying goods online know well, sales tax generally showed up in a “checkout cart” only if the retailer maintained a store or other facility in the consumer’s state. The fact that consumers were not required to pay sales tax unless the store had a physical location in their home state resulted from the Court’s decisions in
Nat’l Bella Hess, Inc. v. Dep’t of Rev. of Ill
(1967) and
Quill Corp. v. North Dakota
(1992). In both cases, the Court determined that constitutional due process (the wily Dormant Commerce Clause) required “nexus” to exist - i.e., a physical presence - before a state could require a retailer to collect and remit to it sales tax. As of June 21st, that nexus requirement is no more.
However, the
Wayfair
Court did not grant states unfettered access to collect taxes from all vendors. Concerns exist as to potentially unreasonable burdens placed on businesses by state taxing authorities. In the context of
Wayfair
, the Court determined South Dakota’s legislation passed constitutional muster (noting, among other things, South Dakota’s participation in the Streamlined Sales and Use Tax Agreement). It likely is no coincidence that the case causing
Quill’s
demise resulted from a carefully drafted, and limited, sales tax law.
Now, things should become interesting -- and they will move fast. Prior to the Court’s decision, proposed sales and use tax amendments almost certainly lay ready in state capitals across the country waiting for legislative consideration if
Wayfair
overturned
Quill
. Further, it is important to recall (as the Court notes in
Wayfair
), Congress enjoys the power to regulate interstate commerce, including sales and use taxes. While consumers will feel some discomfort (notwithstanding that most states usually impose a “use tax” on goods bought without paying sales tax), the real pain will be felt by retailers facing additional (and likely complicated) state and local (and potentially federal) sales tax compliance requirements.
